Risk and return in social finance
Risk and return in social finance
‘I am the market’
The chapter explores how far existing tools and framework for calculating risk and return parameters in mainstream finance can be applied to modelling the likely social returns to a given allocation of capital. After considering risk and return in mainstream finance the chapter reviews the limited work to date on social risk and return. The categories of probability risk, variance risk, and uncertainty risk drawn from the established risk literature are applied to social outcomes. The correlations between particular types of social risk and expected social returns are considered—the patterns of correlation are found to be complex. The chapter makes some observations concerning how to measure and manage social risk in social finance. Conclusions suggest some of the opportunities offered to social investors by developing more rigorous conceptualizations of social risk and return.
Keywords: social risk and return, capital allocation, probability risk, variance risk, uncertainty risk
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